Fintech investment could rise to as much as $150 billion in next 3-5 years, says PwC

Investment in fintech companies could rise to as much as $150 billion over the next three to five years, according to ‘Blurred Lines: How FinTech is shaping Financial Services’, PwC’s latest report.

The report studied the rise of new technologies in the financial services (FS) sector and their impact on existing market players, and drew on the results of a survey which highlights that 83% of respondents believe they are at risk of losing some of their business to stand-alone FinTech firms.

Danger

Two thirds (67 per cent) of FS companies view the pressure of margins as the number one threat posed by the Fintech companies. This is followed by the worry about loss of market share (59%).

PwC says the payments industry is the one seeing the most pressure as incumbents are worried about as much a 28% of their market share. Bankers are worried that they will lose a quarter (24%). Twenty per cent of the market share keep asset & wealth managers awake at night, just one per cent more than insurance companies.

Steve Davies, EMEA FinTech leader at PwC, commented: “Given how fast technology is changing and lines are blurring, no business can afford to rest on its laurels. As competition hots up, the result will be a reduction in margins and a loss of market share for traditional financial institutions. Those who do not act now are at risk of falling behind as FinTech changes the industry from the outside. Incumbents cannot afford to ignore this trend. Nevertheless, our survey shows that 25% of firms currently have no interaction at all with FinTech companies.”

All eyes on Blockchain

The report says Blockchain represents the next evolutionary jump in the FinTech story. Earlier this year, Nick Williamson, founder and CEO of Credits, said that interest in the technology was on the up because it has been an “educational process”.

“The stuff about separating the core blockchain technology has only been talked about for around a year now and it’s just taken this period of time for this educational process to go through and make it apparent that there actually is some substance behind that and it’s not just trying to piggy-back on a jumped-up trend [Bitcoin].”

The report says that the main appeal of Blockchain isn’t just the potential of huge savings, but also the accountability of the process, the tech could hugely improve transparency.

Over half of FS companies (56%) say they understand the importance of Blockchain tech, but almost the same number (57%) are actually either unlikely or unsure how best to respond to the trend.

The strange reactions to Blockchain do not end there, as over a quarter (27%) of asset managers are “not at all” familiar with the technology. Six out of ten insurance companies surveyed were ‘not at all’ or ‘only slightly’ familiar with it.

“Blockchain and disruptive ledger technologies offer a once-in-a-lifetime opportunity for financial services companies to transform the way they do business. The lack of understanding of blockchain technology and its potential for disruption poses significant risks. The firms that do not take the time to understand the impact are underestimating the opportunities and threats that blockchain can provide,” Steven added.

FS and fintech companies working together?

Joint partnerships are the most common way in which FS firms are collaborating with FinTech companies, with 32% of survey respondents stating they are involved in one.

However, one of the biggest challenges FS firms see when dealing with FinTech companies is regulatory uncertainty (49%), whilst the latter believes differences in management and culture (54%) is the largest stumbling block when working with FS companies.

The customer

The report says there has long been a disconnect in financial services between companies and their customers and traditional FS companies need to catch up with consumers rapidly adopting new technologies in their day-to-day lives.

FS companies expect 40% of their customers to use their mobile applications. However, PwC says only 20%, actually do so. By 2020, the majority of FS firms expect that 60% of their customers will be using mobile applications at least once a month to access financial services.